Online-to-offline commerce, or O2O, is deemed to be the next big thing in China’s e-Commerce sector. Internet consultancy iResearch estimates that the country’s O2O market will grow by a third this year to 309 billion yuan, as quoted by Barclays report this month.
Reason enough for Baidu, Inc. BIDU to invest about 40% of the cash on its books to boost its O2O services.
On Tuesday, the Chinese search giant announced that it would invest $3.2 billion over the next three years to boost O2O service offerings by stimulating group-buying website Nuomi. Baidu purchased Nuomi for $160 million in 2014 which operates in more than 330 Chinese cities as well as 650,000 online stores.
Baidu also introduced “Membership Plus”, which combines Nuomi's membership program with merchants’ personal client relationship management systems via member-only prepaid cards, a payment-after-service option and other offerings. Nuomi tested Membership Plus in restaurants and movie ticket categories this year.
According to Baidu, this strategy will help merchants in the network to form their own marketing platform, increase traffic to their sites or physical business locations and take advantage of its vast user base.
China’s O2O Market
The new program will assist Baidu to better compete in China's rapidly increasing e-Commerce arena against the country’s e-Commerce leader Alibaba BABA and others. Alibaba is also investing heavily to develop its O2O retail capability.
Recently, Alibaba and its finance affiliate, Ant Financial, agreed to invest around $483 million each in a new venture — Koubei.com — which will initially focus on China’s fast growing food-delivery market. iResearch estimates that China’s O2O food delivery market will grow at a rate of 30% per year and cross $32 billion by 2017.
In August last year, Tencent TCEHY declared its joint venture with Baidu and Wanda, the country’s biggest property developer, enabling clients to place orders online and pick them up from nearby stores. At that time, this alliance brought to attention O2O commerce, a fast growing segment in China’s rapidly evolving business arena.
According to management consulting firm AT Kearney, China's e-Commerce market is projected to grow at a yearly rate of 25% over the next few years, from $390 billion in 2014 to $718 billion in 2017.
Baidu currently has a Zacks Rank #3 (Hold).
A better-ranked stock in the industry is PetMed Express, Inc. PETS which carries a Zacks Rank #2 (Buy).
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